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European stocks firm as Wall Street eyes record

Wednesday 09:20 GMT. European stocks are tracking a mostly positive showing in Asia as Wall Street eyes record highs on hopes the Trump administration’s pledge of infrastructure spending and tax cuts will boost the US economy.

The dollar and government bond yields are a touch firmer, keeping gold and industrial commodity prices in check.

After the FTSE Asia-Pacific equity index rose 0.6 per cent, the pan-European Stoxx 600 is up 0.5 per cent. Energy groups are providing support after Brent crude bounced 5.7 per cent in the previous session as hopes were once again revived that Opec could agree a production cut at its meeting in Vienna at the end of the month. Brent is easing 0.8 per cent on Wednesday to $46.56 a barrel.

Miners are struggling for momentum after Chinese-traded iron ore futures fell more than 7 per cent.

Helping the mood across global financial markets is the latest rally on Wall Street. Index futures suggest the S&P 500 will hold steady at 2,180 when the opening bell rings later in New York, a gain that would leave the US equity benchmark just 10 points shy of a new record close. The Dow Jones Industrial Average of just 30 price-weighted stocks is already at a record, closing on Tuesday at 18,923.

Just a week ago, S&P 500 futures were plunging 5 per cent on the day to fall below 2,030 as the market was shocked by Donald Trump’s election victory.

But sentiment swiftly shifted as investors welcomed the removal of election uncertainty and made bets that the president-elect’s mooted policies of more spending, alongside less regulation and taxation, will boost corporate profits.

The CBOE Vix index, an option-based measure of expected stock market volatility known as Wall Street’s fear gauge, rose to 23.01 just before the US election, and has since dropped back down to 13.37.

Mr Trump’s strategy is also expected to boost inflation, and this has led to a sharp sell-off in government bond prices and a bounce for the dollar in the belief that the Federal Reserve may have to raise interest rates faster than had been previously forecast.

This “Trumpflation trade”, as it has been dubbed, is continuing on Wednesday. The 10-year US Treasury yield, which moves opposite to the bond price, is continuing to nudge up, gaining 2 basis points to 2.26 per cent, holding near its highs of the year.

Equivalent maturity German Bunds and Japanese paper are up 2bp to 0.33 per cent and adding 3bp to 0.03 per cent, respectively.

The dollar index is up 0.1 per cent to an 11-month high of 100.27, helping force gold down $1 to $1,227 an ounce.

Many emerging market currencies continue to be pressured by the greenback’s latest revival, with the Turkish lira hitting a fresh low. The yen is 0.2 per cent softer at ¥109.42, its weakest since June as the prospect of Fed tightening stands in contrast with more monetary easing expected from the Bank of Japan.

Japan’s exporters like a softer yen, and so this helped the Nikkei 225 stock average gain 1.1 per cent in a generally upbeat Asia-Pacific performance.

South Korea’s Kospi rose 0.6 per cent, but Hong Kong’s Hang Seng eased 0.2 per cent and China’s Shanghai Composite was down 0.1 per cent, the latter receiving little help from news that the renminbi is at its weakest against the US dollar since August 2008.

Additional reporting by Peter Wells in Hong Kong

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